Fitch Ratings has affirmed Chinese electric-vehicle (EV) battery producer
The Outlook is Stable.
CATL's ratings reflect the company's strong global position in lithium-ion battery manufacturing, robust growth prospects, healthy operating cash flow and liquidity, as well as its net cash position.
CATL is expanding in
Key Rating Drivers
Market Leadership: Fitch believes CATL is well positioned to maintain its global leadership in EV battery production, benefiting from strong growth prospects, high technology barriers and a diversified customer portfolio. CATL installed 34.1 gigawatt hours (GWh) of EV batteries 1H21, accounting for 30% of global installation. The company's strong market position is driven by its 50% market share in the large China EV market, which accounts for half of global EV shipments.
We expect CATL's revenue to rise at a CAGR of 39% in 2021-2024, capturing the industry growth, with strong order backlogs from domestic and foreign auto original equipment manufacturers (OEM).
Rapid Industry Growth: We forecast global EV battery installation to increase at a CAGR of 42% through to 2025, with EV penetration in
High Raw Material Costs Constrain Margin: We expect CATL's operating EBITDA margin to remain at 18%-19% due to high raw material costs and pricing pressure. The company reported an operating EBITDA margin of 19.5% in 1H21 (2020: 22.5%), with the surge in EV-battery demand boosting raw material prices. However, battery suppliers, like CATL, face limited pricing pressure from OEMs due to rising demand. CATL is also investing along the value chain to secure raw materials and to secure direct customer access.
Heavy Capex: We forecast substantial capex at CATL to capture soaring end-market demand; the company spent more than
FCF Deficit, Strong Balance Sheet: We expects neutral to negative FCF generation, with CATL's balance sheet buffer helping it to retain modest leverage. The company held a net cash position of
Working Capital Inflow: We forecast near-term working capital inflow from high customer prepayments, but for this to reverse to an outflow in 2022-2024 as the company scales up; we calculate a working capital inflow of
Diversified Customer Portfolio: CATL's technological advantages and capacity capability allow it to secure large supply contracts with major Chinese and foreign auto makers. Its investment in
Derivation Summary
CATL has a strong competitive position as one of the global leaders in lithium-ion battery production. We expect global battery demand from EV and energy storage applications to surge, while traditional auto suppliers, such as
CATL's scale by EBITDA is growing to be comparable to some of our largest rated auto suppliers, such as
CATL has stronger technology leadership, market position and growth prospects than Chinese industrial companies, like
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
2021-2024 revenue CAGR of 39%
2021-2024 EBITDA margin of between 18%-19%
2021-2024 annual capex of between
Dividend pay-out ratio of between 10%-15% in 2021-2024
Outbound annual investment of between
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
sustaining a market-leading position, with high EV market penetration in
Factors that could, individually or collectively, lead to negative rating action/downgrade:
FFO net leverage of above 1.0x for a sustained period
Significant and continued decline in Chinese market share
Decline in order backlog from global automakers
An unexpected drop in global production
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Strong Market Access: CATL has comfortable liquidity, with an unrestricted cash balance of
Issuer Profile
CATL is a Chinese battery manufacturer with a leading position in domestic and international markets. The company's business scope includes manufacturing of lithium-ion batteries, energy storage systems and sales of lithium battery material.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
RATING ACTIONSENTITY/DEBT RATING PRIOR
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